India’s economy slumped to a seven-quarter low of 5.4% in the July to September period, much lower than consensus estimates and below the Reserve Bank of India’s 7% projection.
The softer expansion has prompted economists from Goldman Sachs Group to Barclays Plc to lower their full-year growth estimates. Goldman’s economists Santanu Sengupta and Arjun Varma have revised their projection to 6% for the year through March 2025, down from 6.4%.
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Other analysts also lowered their forecasts aggressively for the year. The “growth shock” was due to “much lower manufacturing growth than assumed,” said Madhavi Arora, lead economist at Emkay Global Financial Services Ltd., who lowered her growth forecast to 6% from 6.5% earlier. “We see urban consumption staying pale ahead owing to weaker incomes, even as we believe that the pick-up in rural consumption is only cyclical,” she said.
Falling wages, slumping company profits and high inflation have hurt economic activity in the last few quarters, prompting several government ministers to call for interest rate cuts. Governor Shaktikanta Das has steadfastly refused to ease borrowing costs, calling it “very risky” as inflation remains high.
The central bank will hold its next scheduled monetary policy meeting on Dec.6.
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The disappointing GDP print is “likely to create more pressure to fast-track government capital expenditure,” Standard Chartered Plc. economists Anubhuti Sahay and Saurav Anand wrote. “However, the sharp manufacturing slowdown in the second quarter is unlikely to reverse quickly.”
There is now a “higher chance of the rate cut cycle starting from December,” wrote IDFC First Bank economist Gaura Sen Gupta in a note. Even if a rate cut is not a certainty, policymakers may have to lower banks’ cash reserve ratio, or the share of deposits lenders must set aside, or activate some other kinds of liquidity measures to help increase lending capacity of banks, said a few economists, including those at Standard Chartered.
RBI will have to change its projections for both inflation and GDP in the policy as price pressures have been higher so far than the RBI forecast of an average 4.5% for the financial year, and actual GDP growth for the quarter has come much below expectations, said Madan Sabnavis, chief economist at the Bank of Baroda. “It would hence be of interest to see what the projections this time are,” he said.